VALUE CHAIN Meaning and
Definition
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Value chain refers to a series of activities and processes that a company undertakes to create and deliver a product or service to its customers. It encompasses all the stages involved in producing, marketing, and delivering a product, starting from the procurement of raw materials to the after-sales service provided to customers.
The value chain can be divided into two main components: primary activities and support activities. Primary activities involve the physical creation, marketing, and distribution of the product. These activities include inbound logistics (such as sourcing and receiving materials), operations (manufacturing or service activities), outbound logistics (warehousing, distribution, and delivery), marketing and sales, and customer service.
Support activities, on the other hand, are activities that support and enhance the primary activities. These can include procurement (sourcing and purchasing materials), technology development (including research and development), human resource management (recruiting, training, and development of employees), and firm infrastructure (which includes activities like finance, accounting, and strategic planning).
The value chain concept emphasizes the importance of how each activity within a company adds value to the final product or service. By analyzing and optimizing the value chain, companies can identify opportunities for cost reduction, competitive advantage, and differentiation. This approach enables organizations to gain a better understanding of their operations and identify areas where they can create value and provide a better customer experience.
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Etymology of VALUE CHAIN
The word "value chain" originates from the field of management and was first coined by Michael Porter in his 1985 book "Competitive Advantage: Creating and Sustaining Superior Performance". Porter used the term to describe a series of activities that organizations go through to bring a product or service from its conception to its delivery to the end customer, while adding value at each step of the process.
The term combines two concepts: "value" and "chain". "Value" refers to the benefits that a product or service provides to customers, while "chain" suggests a sequential and interconnected series of activities. The value chain concept emphasizes the significance of understanding and managing the individual activities within a company's overall process in order to deliver superior value to consumers.
